The ITO, Ward-6(3), Surat V. M/s. Ravi Diamonds, Surat

ITA 4103/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6026 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 08-11-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Corroborative evidences
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : A HMEDABAD CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE SH RI D.C. AGRAWAL , A.M.) I.T.A. NO. 4103/AHD./2007 ASSESSMENT YEAR : 2004-2005 INCOME TAX OFFICER, WARD-6(3), SURAT VS.- M/S. RAVI DIAMONDS, SURAT (PAN : AADFR 1521 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJEEV KASHYAP , SR. D.R. RESPONDENT BY : N O N E (WRITTEN SUBMI SSION FILED) O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 28.08.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-IV, SURAT DELET ING THE ADDITION OF RS.25,76,153/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDERVALUATI ON OF CLOSING STOCK FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF DIAMOND. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THERE WAS A FALL IN GROSS PROFIT AS COMPARED TO LAST YEAR. THE ASSESSEE HAD SHOWN TOTAL TURNOVER OF RS.64,63,412/- WITH GROSS PROFIT OF RS.5,87,151/- I.E. 9.08% AS AGAINST THE SALES OF RS.2,92,23,498/- WITH GROSS PROFIT OF RS.30,32,220/- I.E. 12.5%. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR FALL IN GROSS PROFIT BY SUPPORTING EVIDENCE. THE ASSESSEE SUBMITTED THAT THERE WAS A D EPRESSION IN THE INTERNATIONAL DIAMOND MARKET AND DUE TO COMPETITION WITH CHINA, THE MARGI N OF PROFIT DECREASED COMPARED TO LAST YEAR. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATIO N AND HELD THAT THE MAIN REASON FOR FALL IN GROSS PROFIT WAS DUE TO UN-ESTABLISHED METHOD OF VA LUATION OF CLOSING STOCK. THE VALUATION OF CLOSING STOCK OF FINISHED GOODS MADE BY THE ASSESSE E CONSIDERING THE ESTIMATED GROSS PROFIT WHICH HAS PLAYED MAIN ROLE IN SUPPRESSING THE PROFI T AND FOR THAT REASON, THE GROSS PROFIT HAS GONE DOWN. ACCORDING TO ASSESSING OFFICER, FROM THE COST OF THE DIAMOND, THE ASSESSEE HAS REDUCED SALES MINUS ESTIMATED GROSS PROFIT, WHICH DO NOT AF FECT ON THE TRADING RESULT. THE ASSESSEE HAD 2 ITA NO. 4103/AHD/2007 VALUED THE CLOSING STOCK OF 3551.97 CARAT AT RS.594 8/- PER CARAT WHICH COMES TO RS.2,11,21,738/-. ACCORDING TO METHOD OF VALUATION, THE CLOSING STOCK SHOULD BE VALUED AT COST PRICE OR MARKET PRICE, WHICHEVER IS LESS. THE ASSESSING OFFICER REJ ECTED THE BOOK RESULT UNDER SECTION 145 OF THE ACT AND VALUED THE CLOSING STOCK AT RS.6671.76 PER CARAT WHICH COMES TO RS.2,36,97,891/- AS AGAINST THE VALUATION OF RS.2,11,21,738/- AND THE A DDITION OF RS.25,76,153/- IS MADE BY ADOPTING ACTUAL PRICE OF THE POLISHED DIAMONDS. 3. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) STATED THAT IN THE ASSESSMENT YEAR 2003-04, IN ASSESSEES OWN CASE, TH IS TYPE OF ADDITION MADE WAS CONFIRMED BY HIM. HOWEVER, ON FURTHER APPEAL BY THE REVENUE, ITA T, AHMEDABAD VIDE ORDER DATED 25.05.2007 IN ITA NO. 416/AHD/2007 DELETED THE ADDITION. HE, T HEREFORE, FOLLOWING THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 (SUPRA) DELETED THE ADDITION. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APP EALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. ON THE DATE FIXED FOR HEARING, NONE WAS PRESENT FROM THE SIDE OF THE ASSESSEE. HOWEVER, WRITTEN SUBMISSIONS WERE FILED, WHEREIN IT WAS CONT ENDED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 25.05.2007 OF ITAT, AHMEDABAD IN ITA NO. 416/AHD/2007 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04. IN THAT Y EAR, TRIBUNAL DELETED THE ADDITION, WHICH WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VALUATI ON OF STOCK AND CONFIRMED BY LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE COPY OF TH E DECISION OF THE TRIBUNAL DATED 25.05.2007 IS ENCLOSED WITH THE WRITTEN SUBMISSION. 5. ON THE OTHER HAND, SHRI SANJEEV KASHYAP, SR. D.R . APPEARING ON BEHALF OF THE REVENUE BEFORE US CONTENDED THAT THE DEPARTMENT HAS NOT ACC EPTED THE DECISION OF ITAT FOR THE ASSESSMENT YEAR 2003-04 AS A SUBSTANTIAL QUESTION O F LAW ARISES WHICH REQUIRES TO BE CONSIDERED BY THE HON'BLE GUJARAT HIGH COURT. TO KEEP THE ISSU E OF VALUATION OF CLOSING STOCK ALIVE, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) IS NOT ACCEPTABLE. 6. AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATIV E, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT SIMILAR ADDITION WAS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2003-04, WHICH WAS CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). HOWEVER, ON FURTHER APPEAL 3 ITA NO. 4103/AHD/2007 BY THE ASSESSEE, IT WAS DELETED BY THE TRIBUNAL. TH E REASONING GIVEN BY THE TRIBUNAL VIDE ORDER DATED 25.05.2007 IN ITA NO. 416/AHD/2007 IS CONTAIN ED IN PARA 6, WHICH READS AS UNDER :- 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND HAVE A LSO GONE THROUGH THE AFORESAID DECISIONS. IT IS TRUE THAT THE VALUE MAY DIFFER FROM ASSET TO ASSET AND PLACE TO PLACE WITH DIFFERENT PERSON A ND THE VALUE OF THE CLOSING STOCK CANNOT BE MATHEMATICALLY CALCULATED. THE MONEY VALUE ATTRIBUTED TO THE STOCK SHOULD BE DECIDED AND ESTIM ATED BY THE CONCERNED AUTHORITY IN A REASONABLE AND JUDICIAL MA NNER ON THE BASIS OF THE FACTS AND CIRCUMSTANCES OF THE CASE AVAILABL E BEFORE HIM. HERE THE QUESTION IS WHETHER ACTUAL COST AS WORKED OUT B Y THE A.O. ON VALUE OF OPENING STOCK PLUS PURCHASES AND MINUS COST OF S ALE CAN BE SAID TO BE WRONG. IN NORMAL CIRCUMSTANCES, IT IS NOT. IN TH IS CASE, HOWEVER, THE ASSESSEE IS CONSISTENTLY FOLLOWING A SYSTEM OF VALU E OF CLOSING STOCK AT SALE PRICE OF THE STOCK MINUS THE G.P. AND THAT CAN NOT BE FAULTED. THE G.P., HOWEVER, RETURNED BY ASSESSEE IS 12.5% WHICH WAS IN THE LIST. THIS YEAR G.P. IS 8% AND, THEREFORE, THE SALE PRICE IS TO BE REDUCED BY THIS G.P. OF 8% AS AGAINST 12.5%. WE DIRECT ACCORDI NGLY TO VALUE THE CLOSING STOCK AT SALE PRICE AS RETURNED BY GROSS PR OFIT @ 8%. 7. SINCE IN THE IMPUGNED ORDER, THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS) HAS FOLLOWED THE DECISION OF ITAT, AHMEDABAD IN ITA NO. 416/AHD/2007 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04, WE FOLLOWING THE S AME INCLINED TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 11.06.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 11/ 06 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.